Future Value - Hindi - YouTube

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Namashkar, my name is Mukul and welcome to Asset Yogi

Where we unlock the knowledge of finance

In the previous video, we discussed the time value of money

In this video, we'll understand the concept of future value in more detail.

As I gave an example in the previous video,

There are many investment products in which, if your age is 24-25

So if you invest Rs.1lakh for one time,

Then on retirement, you can get Rs.2 crores

So what are the calculations and assumptions of these investment products

This is what the concept of future value is, which we'll understand in detail in this video.

With that, how you can calculate it easily in MS Excel

And you can calculate the future value of any value, we'll see that also

So stay tuned with this video till the end, let's switch to my computer screen.

So let's understand the concept of Future Value of Many with an example

Let's take the same example which we took in our previous video

So if you invested Rs. 10,000 at date 0 somewhere

So let's see how much it will become after 1, 2, 3, 4, 5 years

Here we have 2 options, one is Simple Interest

If your money grows with simple interest, then how much will it grow

And another one is the Compound Interest

So let's first see the simple interest case, if you invested Rs.10,000

And if you're getting an interest rate of 7%, then it will become Rs. 10,700

So Rs. 700 will be added in Rs. 10,000

Now focus here, in the second year,

7% will add on the initial amount which is Rs.10,000

So if you'll add 7% here, then Rs. 700 will keep on adding on Rs.10,000

So if you add 700 with 10,700, it becomes Rs. 11,400

So that means, Rs. 700 will keep on adding and that is what simple interest is

Now again we'll add 7% of Rs. 10,000 in it

So this will become Rs. 12,100

In the 4th year, it becomes Rs. 12,800

And after adding Rs. 700 again, it becomes Rs. 13,500.

So in this way, simple interest is calculated

Simple interest is very less used interest and generally, compound interest is used whenever we talk about the future value

So now, if you'll calculate the future value according to the compound interest and if you invest Rs. 10,000

And if you add according to 7%, it became Rs. 10,700

And now in the case of compound interest, you'll add 7% of Rs. 10,700

Here, you were doing the interest calculation on Rs. 10,000

But here, you will add 7% on Rs. 10,700

So basically, you will multiply the amount by 1.07

So 10,700 x 1.07 = 11,449

Again you'll add 7% on this and multiply it by 1.07

It comes out Rs. 12,250

Now again multiply it by 1.07

And it becomes Rs. 13,108

And finally, multiply it again by 1.07, it becomes Rs. 14,025

So in this case, the formula that comes out is given.

I also discussed this in the previous video

So instead of calculating for each year, put the values in this formula

And you'll easily get the final number, so put Rs. 10,000 here

Multiply by (1+1.07) raise to the power 5

So because it was growing for 5 years, that's why raise to the power 5.

So if you will calculate this in a calculator or in the MS Excel

Then it will come Rs. 14,025

So this was a simple calculation but the point to remember here is that

This calculation was of annual compounding

This means your money is compounded each year

And this 10,700 is compounded in 1 year

Now if say, what if this would be monthly compounded

If I write here monthly compounding, then how can we calculate it?

In the case of monthly compounding, you will write the present value as it is

But now, the rate of interest to be written will me monthly because we're calculating monthly compounding

So now you'll do (1+0.07/12) because you want to calculate the interest rate for one month

After this, Period (n) will also be written in months

So here it will be 5 x 12 = 60

Now if you will calculate it, it comes out Rs. 14,176

So you can see the difference clearly, if there is monthly compounding

Your amount comes out more

So in the lesser time compounding will occur, the more will be the amount increased

So this compounding can be annual, quarterly, half-yearly, daily, or monthly

So whenever you buy any investment product, check how frequently compounding takes place

Now, most of the investment products consist of monthly compounding, but still whenever you buy any investment product

Or even if you borrow a loan, you should know how frequently the interest rate or the rate of return is compounding

On that basis, you have to do this calculation.

So let's quickly see an example that I gave you in the introduction of this video

Let's say your age is 24 years and you invest Rs. 1 lakhs

You want to check how much money you'll get at the time of retirement

And let's say you choose an investment product that can give you 15% returns each year

So how much money you'll get?

So you can easily calculate the future value

You'll put present value Rs. 1 lakh, so let me write here

Multiplied by, how much is the rate of interest

Because we're assuming it as monthly compounding

because most investment products consist of monthly compounding

So you'll do 0.15/12

Then raise to the power 36, since you're doing this for that much time

So you'll do 36 x 12

Now after calculation, this amount will come Rs. 2.14 crores

Let me tell you the exact figure that is Rs. 2,14,11,829

Now let's do this calculation in MS Excel, it's done in seconds over there

So let's see its calculation in the excel sheet

We'll see in all the 3 examples

In the first example, the present value is Rs.10,000, the annual interest rate is 7%

The time period is 5 years and compounding is happening annually

In the second example, everything is the same, but compounding is monthly

And in the 3rd example, if Rs.1 lakh grow by 15% annually

It grows for 36 years and the compounding takes place monthly, so how much money will be made

So let's see how can we calculate the future value

Firstly, put '=' sign and for future value, you will type 'FV'

After this, open the bracket and you can see that all the information is appearing here

So first of all, enter the 'rate'

Annually, you'll enter the rate 7% as it is, so I've selected the cell

After giving comma and space, select the period

The period is 5 years, so we'll select this cell

After putting comma, select the payment

Payment is there in the case of annuity in which you can pay at the regular intervals

Here we're doing a single payment, so the value will be 0

I'll explain the annuity example in the next video and we'll see how this payment option is used

Now let's see the present value, as you can see bracket is here

This means we have to put the value in negative

Negative means, because we're doing the payment, we'll apply a '-' sign here

Then we'll select this present value

After this, you can ignore this type and close the bracket

Now press the 'enter'.

As you can see, our value came out Rs.14,026

I took Rs.14,025, so I think it is rounded off.

Similarly, let's see what happens in the case of monthly compounding.

Similarly, repeat the same process, =, FV for future value, bracket open

Now focus here

Because we have to take monthly rate,

Because this is monthly compounding

So now, divide it by 12

Again put the comma and space, and now write the period

Now you have to multiply the period by 12 because

We're talking about monthly, so 5 x 12

Again put a comma and space

Payment is 0 because there's no annuity

Again put a comma and put the present value with a '-' sign

Rs.10,000 selected

Again close the bracket and press the enter

It came out Rs.14,176

An exact figure like we got last time.

Now let's say if you invest Rs. 1lakhs at 15% interest rate for 36 years

And if the compounding is monthly, then what value comes out

Similarly, for future value, you'll write FV

Open the bracket, you'll select the rate of interest to be 15%, divided by 12

After comma and space, multiply 36 years by 12 months

Then payment is 0 here as well

Then after comma and space,

I selected the present value cell, bracket close and enter.

How much value came out?

It came out Rs.2,14,11,829

So it is the exact same value

So you can calculate this future value very easily

In the next video, we'll see how to calculate the future value if there is any annuity

and let's say you do the payment every month

Let's say you invest Rs.10,000 every month

Then how much will that become in the future and how it is calculated

We'll see that in the next video

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